Oil turns higher as U.S. inflation cools, crude stocks drop more than expected

Crude oil futures reversed course to finish higher Wednesday, as U.S. government data showing a slight drop in inflation and a larger than expected drawdown in crude stockpiles.

The Consumer Price Index climbed 0.3% last month after advancing 0.4% in March and February, while the 0.3% gain in the core rate of inflation, which strips out food and energy, was the smallest increase in four months.

In response, the dollar fell 0.6% against a basket of other major currencies and benchmark 10-year U.S. Treasury yields both fell to their lowest levels in more than a month.

Lower interest rates would reduce borrowing costs for businesses and consumers, which could spark economic growth and demand for oil.

Meanwhile, U.S. commercial crude inventories last week fell by 2.5M barrels, the Energy Information Administration reported, much more than the consensus forecast for a 400K-barrel draw.

“The crude oil draw is mostly from the increase in the refinery utilization rate, [as] refiners finally got serious… finally cranked it up a bit,” Mizuho’s Bob Yawger told Reuters.

Front-month Nymex crude (CL1:COM) for June delivery settled +0.8% to $78.63/bbl, and front-month July Brent crude (CO1:COM) closed +0.4% to $82.75/bbl; the premium of Brent over WTI fell to its lowest since March 28.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI)

Crude futures fell in early trading after the International Energy Agency cut its forecast for oil demand growth this year, citing slow industrial activity and mild winter weather that reduced fuel consumption across some of the world’s largest economies, particularly in Europe.

Oil demand growth for 2024 is now seen at 1.1M bbl/day from a previous outlook of 1.2M bbl/day, the IEA said in its latest monthly report, with oil demand in OECD countries contracting by 70K bbl/day Y/Y.

“The slump in the OECD contrasts with relatively resilient non-OECD demand of 1.2M bbl/day Y/Y in both 1Q and 2024 on average, rendering global growth ever more dependent on emerging economies,” the IEA said.